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Viodi View Newsletter - August 17th, 2005
Predicting the Future of Telcos
By Ken Pyle, Viodi, LLC
Industry Telephone’s Delbert Wilson set the tone of the TSTCI Futures Retreat with his invocation that asked for guidance as to how he and his telco colleagues can improve service for their customers. This dedication to the customer and community is such a refreshing change from the short-term view that permeates so much of the business environment. So, it was appropriate that Bob Treadway, President of Futuretrends, provided a framework for telcos to develop long-term strategic plans.
Treadway uses a methodology that is based on what he calls a “cone of uncertainty.” This approach does not attempt to create specific predictions. Instead, the “cone of uncertainty” leverages the uncertainty associated with the future by accounting for different scenarios that could happen. The further out in time that one looks, the more possible scenarios there are and the more difficult it is to predict which scenario will actually happen.
Treadway suggests that as the future turns to the near-term, plans can be adjusted to meet whatever scenario unfolds. He suggested that front line employees are good sources for helping to develop the scenarios. He emphasized the importance of having good communication channels to get input from employees and customers to help develop future scenarios and drive innovation. He prescribed innovation as the way a company can turn their plans into action and prevent their products from turning into commodities or, as Treadway put it, moving to the “ultimate value point”. The ultimate value point is that point where the product has essentially become a commodity. Treadway pointed out that ultimate value point is great for the consumer, but, using the airline industry as an example, it can be devastating for the suppliers’ ability to make a profit. Treadway emphasized that innovation is required in all parts of an organization, including process, customer service and product features in order for an organization to remain competitive and viable. Treadway further suggested that, “Innovation comes from experimentation, talent, management and implementation.” He reminded the audience that the, “Solutions lie within your organization.” He highly recommended finding ways to tap the hidden talent and knowledge that exists within an organization to foster an innovative climate. |
Is Telecom
a Good Investment?
Frank Gallagher suggested that investors are still scared of the telecom market. The prevailing thought is that, “Telecom – great for the consumer, terrible for the investor.” His data showed that the RBOC, IOC and Cable MSO sectors are valued at 6.4, 7.1 and 10.4 times EBITDA. He suggests that over time these valuations will tend to converge with the most likely scenario that cable’s valuations will drop. Further, he suggested that telcos are splitting into two camps characterized as “Triple Play Implementers” (e.g., SBC, Verizon, SureWest, WVT) and “Free Cash Flow Generators” (e.g., Valor, Fairpoint, Iowa Telecom, Citizens, Madison River). The Triple Play Implementers tend to be in areas which have more competition, while the Free Cash Flow Generators tend to be in rural areas. The Free Cash Flow Generators, such as Valor, are even employing the as old school utility trick of guaranteeing a dividend. One of the other financial tidbits, which should be of great interest to any independent telco that is butting up against a larger telco’s underserved rural operations, is the challenge these larger telcos face in selling off systems. It is just too much of a hassle for these larger entities to sell small properties on a piecemeal basis. The marginal cost of keeping these properties is quite low (since most of the operational overhead is already absorbed nationally), but the price they require is still quite high. The take-away is that is it is probably better to overbuild than to even try to buy, as you will get new plant. But, if you do try to buy, Gallagher suggested the consortium approach, so enough subscribers can be aggregated to interest the larger telco. |
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